USA Law and Practice Contributed by: Daniel Kracov, David Marsh and Alice Ho, Arnold & Porter
7.5 Trade Blocs and Free Trade Agreements
for certain drugs covered under Medicare Part B and Part D with the highest total spending (excluding specific categories of drug). Under this Drug Price Negotiation Programme, the number of drugs subject to price negotiation included ten Part D drugs for 2026, another 15 Part D drugs for 2027, another 15 Part D and Part B drugs for 2028, and another 20 Part D and Part B drugs for 2029 and later years. The drugs are cho- sen from the 50 drugs with the highest total Medicare Part D spending and the 50 drugs with the highest total Medicare Part B spend- ing. A prohibitive excise tax will be levied on drug companies that do not comply with the negotiation process. • Drug companies are now required to pay rebates to Medicare if prices rise faster than inflation for drugs used by Medicare benefi- ciaries. • Out-of-pocket spending is capped for Medi- care Part D enrollees and other Part D benefit design changes. • Monthly cost sharing for insulin is now limited to USD35 for people with Medicare. Various aspects of the IRA have been quite con- troversial, including provisions that disadvantage certain orphan drugs, as well as small molecules relative to biologics. The IRA drug-pricing provi- sions are currently being challenged in multiple lawsuits under a wide variety of theories. There are also other federal laws that cap phar- maceutical prices for certain purchasers or require minimum rebate levels in the following ways. • Subject to ongoing litigation concerning the scope and terms of the programme, manu- facturers sell their outpatient drugs to “cov- ered entities” (typically, certain clinics and
The USA is a member of the WTO and has free trade agreements in effect with 20 countries. Some are bilateral agreements, but others are multilateral in nature. The USA is also party to Trade and Investment Framework Agreements that provide frameworks for governments to dis- cuss and resolve trade and investment issues at an early stage, as well as bilateral investment treaties that help protect private investment, develop market-oriented policies in partner countries, and promote US exports. Addition- ally, the FDA is party to various Memoranda of Understanding and mutual recognition agree- ments aimed at facilitating global discussions and risk assessments with regard to, for exam- ple, inspections. 8. Pharmaceutical and Medical Device Pricing and Reimbursement 8.1 Price Control for Pharmaceuticals and Medical Devices Until recently, the USA had little in the way of pricing limitations on pharmaceutical products and medical devices. Therefore, in most cases, the manufacturer of a product sets the initial price and adjusts prices (including rebates and other price concessions) over time in response to market conditions. However, in a major shift, the Inflation Reduction Act 2022 (IRA) incorpo- rated provisions to lower prescription drug costs for those covered by Medicare and reduce drug spending by the federal government. Among others, the IRA includes the following provisions. • The federal government is in its second round of negotiating pricing for certain drugs chosen for inclusion in the programme. Such negotiations establish “maximum fair price”
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